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Deepak Fertilisers &
Petrochemicals Corp
Overweight
DPFE.BO, DFPC IN
Raw Material Cost Headwinds, Reduce PT to Rs200
• New TAN plant operational: After initial delays (related to achieving the
desired concentration of nitric acid), new TAN plant has become partly
operational in Feb ‘11. Management expects plant to be fully operational by
end of this month and achieve 75%-80% utilisation in FY12E. We assume
new TAN plant to operate at 70% utilisation rate in FY12E and 85%
utilisation rate in FY13E.
• Headwinds from strong ammonia prices, partially mitigated by higher
fertilizer subsidy: Ammonia prices (key input for DPFC) have risen 33%
in the past 6 months. With 68% of ammonia requirement exposed to market
rates, DFPC margins are susceptible to continuing price increases. With
significant new TAN capacity coming on-stream, we believe DFPC has
limited ability to pass on higher prices. However, we see higher subsidy for
ANP fertilizer partially off-setting the ammonia price increase.
Accordingly, we reduce our EBITDA margin assumptions by 200bps for
FY12E and 230bps for FY13E.
• Niche products doing well: Methanol realizations have been strong (+26%
YoY) with current prices close to USD320/T. At breakeven of USD210/T,
DFPC has raised production to capitalize and achieve higher margins. Prices
for IPA and Bentonite sulphur fertiliser sales have been ahead of
expectations with strong demand driving up realizations.
• Estimates and Price target revision: We cut our EBITDA estimates by
7%-9% for FY12E-FY13E and EPS estimates by 10%-14% to account for
delay in commissioning of new TAN plant and higher ammonia prices. We
lower our TP to Rs200 (now rolled forward to Sep-11), based on 8x Sep-12E
P/E, at 20% discount to domestic peer group. Maintain OW. Key risks
include further delays in scaling up of new TAN plant, big increases in
ammonia prices, FX risks and regulatory risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deepak Fertilisers &
Petrochemicals Corp
Overweight
DPFE.BO, DFPC IN
Raw Material Cost Headwinds, Reduce PT to Rs200
• New TAN plant operational: After initial delays (related to achieving the
desired concentration of nitric acid), new TAN plant has become partly
operational in Feb ‘11. Management expects plant to be fully operational by
end of this month and achieve 75%-80% utilisation in FY12E. We assume
new TAN plant to operate at 70% utilisation rate in FY12E and 85%
utilisation rate in FY13E.
• Headwinds from strong ammonia prices, partially mitigated by higher
fertilizer subsidy: Ammonia prices (key input for DPFC) have risen 33%
in the past 6 months. With 68% of ammonia requirement exposed to market
rates, DFPC margins are susceptible to continuing price increases. With
significant new TAN capacity coming on-stream, we believe DFPC has
limited ability to pass on higher prices. However, we see higher subsidy for
ANP fertilizer partially off-setting the ammonia price increase.
Accordingly, we reduce our EBITDA margin assumptions by 200bps for
FY12E and 230bps for FY13E.
• Niche products doing well: Methanol realizations have been strong (+26%
YoY) with current prices close to USD320/T. At breakeven of USD210/T,
DFPC has raised production to capitalize and achieve higher margins. Prices
for IPA and Bentonite sulphur fertiliser sales have been ahead of
expectations with strong demand driving up realizations.
• Estimates and Price target revision: We cut our EBITDA estimates by
7%-9% for FY12E-FY13E and EPS estimates by 10%-14% to account for
delay in commissioning of new TAN plant and higher ammonia prices. We
lower our TP to Rs200 (now rolled forward to Sep-11), based on 8x Sep-12E
P/E, at 20% discount to domestic peer group. Maintain OW. Key risks
include further delays in scaling up of new TAN plant, big increases in
ammonia prices, FX risks and regulatory risks.
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